E-mini S&P (December)
Last week’s close: Settled down 4.50 on the session and down 3.25 on the week at 2579.50.
Fundamentals: There is a lot on the docket this week to shape investor and central bank sentiment. Tomorrow’s ECB panel includes Draghi, Yellen, Carney and Kuroda and it begins just as regional inflation data and GDP is due out of the Eurozone. U.S PPI is also due tomorrow morning. We expect to see some molding of tax-reform and though it is unlikely they will produce a complete flop before the end of the year, investors remain skeptical and this has contributed to a minor pull-back in the S&P. Data out of China is due later tonight at 8:00 pm CT and includes Fixed Asset Investment, Industrial Production and Retail Sales. Do not forget to read our “Tradable Events this Week”.
Technicals: We finished last week incorporating a slight bearish bias for the first time in a while. The factors are not only technical as treasury prices fell sharply to finish out the week as well as the unknown surrounding tax-reform. We have major resistance at 2583-2585.75 and this level has held well coming into this morning. Price action grinded higher throughout Friday’s session but has rejected this level. The bears are in the driver’s seat to start the week but also must be flexible and not married to a position that gets out above this resistance, especially upon more clarity on tax-reform.
Bias: Neutral/Bearish
Resistance – 2583-2585.75**. 2594.50-2596**, 2600*, 2616**
Support – 2573.50-2574.25**, 2561.75-2562.25**, 2555*, 2539.25-2543***
Crude Oil (December)
Last week’s close: Gained more than $1 on the week but lost 43 cents on the session Friday, settling at 56.74.
Fundamentals: A big week unfolds out of the gate with OPEC’s Monthly Oil Market Report this morning. Some of the headless are: They revised their 2018 demand up 340,000 bpd from last month. The group’s output fell 150,900 bpd in October. Saudi production increased 83,000 bpd but remains below their target. The IEA releases their monthly report tomorrow and of course, inventories begin to come into the picture later in the day tomorrow. However, our main focus this week is option expiration and how this will ultimately drive the market. The fundamental backdrop has been a major factor in why we have been very bullish. Still, the market remains just as technically driven and the technicals are why we called for higher price action on the breakout above 53.11 and furthermore, above 55.25. December is the most highly traded contract each year and expiration is right around the corner, this means a massive repositioning has already begun. Still, there is tremendous open interest in December options that expire Wednesday and this has kept a lid on price action above the $57 mark.
Technicals: Ultimately, the option landscape opens the door to hurt the most amount of traders on a move back to $55. Now, the 55.02-55.25 level was the breakout and brought tremendous trading volume to a high of 57.92 so the fact that this key support level comes into the picture for multiple reasons makes it that much more attractive. Our first support now comes in at 56.41-56.51 and has held extremely well for the last four sessions but today’s session is working on the third straight lower high and a move below here should open the flood gates.
Bias: Neutral/Bearish
Resistance – 57.92**, 58.97***
Support – 56.41-56.51**, 55.02-55.25***, 54.45-54.54**, 53.76-53.90**, 52.86-53.11***
Gold (December)
Last week’s close: The metal gave up much of its gains on the week losing nearly $13 on Friday’s session to finish at 1274.2.
Fundamentals: Though tax-reform is far from achieved, traders are starting to believe that something will be figured out before the end of the year and this has kept a lid on Gold. Furthermore, the prospects of stronger global growth and the EU raising their GDP forecast to the highest in a decade has put pressure on Gold in the face of a weaker Dollar while treasury yields around the world performed very well on Friday. This is a crucial week that is jammed packed with data and Fed speak. Philadelphia Fed President Harker has already spoken and continues to support a December hike, however, he is still using the term “penciled in”. PPI data is due out tomorrow with CPI and Retail Sales on Wednesday. Chicago Fed President gives opening remarks at an ECB panel tomorrow that includes Yellen, Draghi, Carney and Kuroda.
Technicals: Major four-star support has seemingly prevailed once again. We rarely use four stars and regardless of how things play out this week, the level has earned its credence through the month of October. However, it is important to remember that four-stars is only used in a so-to-speak earth-shattering manner; meaning that a close below here would encourage an exodus of longs. The 200 day moving average is grinding higher and now comes in at 1270.3. Key resistance at 1291.3-1292.9 held very well late last week and remains a key hurdle that the metal must close out above in order to squeeze shorts. First, a close back above 1280.5-1281.5 is needed to neutralize Friday’s weakness.
Bias: Bullish
Resistance – 1280.5-1281.6**, 1291.3-1292.9**, 1298.4-1300**, 1308.4-1312.6**
Support – 1262.8-1270.3***, 1243.6**
Natural Gas (December)
Last week’s close: Settled at 3.213, gaining nearly a quarter on the week.
Fundamentals: Colder temperatures are now the norm and we are in heating season. On the storage report on Thursday, we expect to see levels drawn down from last week. November is typically a turning point for Natural Gas and the bulls are now in the driver’s seat.
Technicals: Price action recovered extremely well last week gaining nearly .25 after the December contract gave up all of its premium to the expired November contact. The technicals turned extremely favorable with a gap higher as the pendulum of perception swung bullishly after pricing in too mild of a winter. A consolidation this week at minimal would be healthy. Resistance at the 3.22 level has kept prices in check and the 3.179-3.198 level will remain critical but ultimately more so on this week’s close. A consolidation lower can be healthy if it stays above first and second support.
Bias: Bullish
Resistance – 3.179-3.198***, 3.22**, 3.297-3.353***, 3.55**, 3.67**
Support – 3.08**, 3.035-3.051** 2.984-2.998***, 2.847-2.861**, 2.753-2.7565***, 2.486-2.522****
10-Year (December)
Last week’s close: Lost about half a point on the week, all of which came on Friday as it settled at 124’225.
Fundamentals: Treasuries around the world sold of sharply on Friday ahead of inflation data and the ECB panel this week. The EU raised their growth forecast last week to 2.2% for 2017, the highest in a decade. Eurozone GDP data is due out tomorrow morning. Tax-reform also poses a hurdle to the bull camp; traders do expect something to ultimately be achieved before the end of the year. Getting something done would rev up the growth engine which would theoretically lead to tighter monetary policy. But before we see the growth, there is also likely to be a larger debt burden on the country which means new issues of bonds (a larger supply).
Technicals: Our first support at 124’19 has kept waves of selling in check. We are long term bullish, at least for the next six months, however, we have crafted a very cautious picture in the near term. This price action is exactly what we want to see; for sellers to come in now and into the Fed’s December hike as this is when we expect the buying opportunity to present itself. Don’t forget to read our “Tradable Events this Week” for more details.
Bias: Neutral
Resistance – 124’31-125’015**, 125’19**, 125’255**, 126’01**, 126’15***
Support – 124’19**, 124’00**, 122’22 – 122’29***
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